Why the World Is Bypassing the Dollar

Zambia’s Closed-Loop Monetary Strategy: Balancing Retail De-Dollarization with Sovereign Copper Finance

Fri , Aug 0& 2026 /Mpelembe Media/ — Sub-Saharan Africa is undergoing a profound structural transformation as sovereign nations systematically seek to reduce their historic reliance on the United States dollar for reserves, trade invoicing, and domestic transactions. For decades, the US dollar served as the undisputed financial anchor across the continent, but this deep integration has exposed emerging economies to extreme macro-financial vulnerabilities, particularly during cycles of US Federal Reserve monetary tightening. When interest rates rise in Washington, global capital retreats to dollar-denominated assets, triggering sharp depreciations of local African currencies that inflate the cost of imported goods and escalate the servicing costs of dollar-denominated sovereign debt. This systemic vulnerability was starkly demonstrated in November 2020 when Zambia defaulted on a $42.5 million Eurobond payment, with the concurrent strength of the US dollar significantly exacerbating the domestic financial fallout. Furthermore, the geopolitical landscape of the mid-2020s has accelerated the search for alternative payments due to the perceived weaponization of Western-dominated dollar-clearing systems, prompting African policymakers to seek bilateral trade architectures and payment systems backed by the BRICS+ alliance to protect their economic sovereignty.

To facilitate this transition, a rapidly expanding pan-African clearing infrastructure is emerging to internationalize the Chinese yuan and establish robust, non-dollar payment networks. A major milestone occurred on June 26, 2026, when the People’s Bank of China authorized Standard Bank Group and the Industrial and Commercial Bank of China to jointly operate the “Renminbi Clearing Bank of Africa” with the capacity to clear transactions across 19 countries, marking the first continent-wide yuan clearing hub. This infrastructure leverages China’s Cross-Border Interbank Payment System, providing African businesses with direct access to China’s onshore financial system and bypassing expensive intermediate dollar conversions. Standard Bank, which became the first African commercial bank to join the payment system in November 2025, processed approximately $500 million in trade-related transactions in its first four months. Across the continent, other major institutions are aligning with this architecture; the National Bank of Angola formally authorized commercial banks to use the yuan to meet mandatory foreign currency reserve requirements in July 2026, while its second-largest commercial lender, Banco de Fomento Angola, is preparing to connect directly to the payment network. Simultaneously, pan-African lender Ecobank is negotiating with the Bank of China to deploy direct local-currency-to-yuan settlements across 35 markets by the end of 2026, and East African sovereigns like Kenya and Ethiopia have converted or restructured portions of their Chinese debt into yuan-denominated liabilities to ease their debt-servicing constraints under elevated US interest rates.

Zambia has positioned itself at the vanguard of this monetary shift through a sophisticated combination of domestic retail de-dollarization and closed-loop fiscal integration with Beijing. Domestically, the Bank of Zambia has enforced a strict mandate requiring all public and private transactions to be quoted and settled exclusively in local kwacha and ngwee, backstopped by administrative fines and prison sentences. This regulatory push is designed to reclaim the central bank’s monetary control from private-sector Cairo Road transaction dollarization, which historically degraded the transmission of domestic interest rate adjustments. Internationally, Zambia became the first African country to officially accept Chinese yuan for mining royalties and tax payments. This mechanism allows Chinese mining operators, such as China Nonferrous Mining Corp. Ltd., to settle fiscal liabilities directly in the yuan revenues they receive from global copper sales. The Bank of Zambia then accumulates these yuan reserves to directly service its extensive bilateral debt obligations to Beijing, bypassing the US dollar entirely. While this dual strategy offers immediate transaction savings and cushions against exchange rate volatility, it also introduces strategic risks. Deepening yuan integration risks a “convertibility trap” because the currency remains tightly managed by the People’s Bank of China on the capital account, meaning accumulated reserves are not fully convertible for global transactions. This raises the concern that African central banks may substitute historical Western financial dependence with structural dependence on the Chinese state, while potentially amplifying trade deficits and locking in commodity-backed repayment structures.

Representative Foreign Exchange Rates and Spreads in Zambia (August 2026)

The underlying financial mechanics of Zambia’s de-dollarization strategy and pivot to the Chinese yuan are clearly reflected in the official mid-rates and commercial transaction spreads established in the Zambian interbank market. The following data highlights the structural cost advantages of direct yuan-denominated settlements over traditional western fiat currencies “:

Currency Pair | ISO Code | Central Bank Mid-Rate | Commercial Bank Buying Rate | Commercial Bank Selling Rate | Typical Bid-Ask Spread (%)
Zambian Kwacha / US Dollar | ZMW/USD | 18.8321 | 19.0300 | 19.3790 | 1.83%
Zambian Kwacha / Chinese Yuan | ZMW/CNY | 2.7889 | 2.8155 | 2.8231 | 0.27%
Zambian Kwacha / Euro | ZMW/EUR | 22.0120 | 21.7620 | 22.2010 | 2.02%
Zambian Kwacha / Pound Sterling | ZMW/GBP | 25.6580 | 25.4010 | 25.9140 | 2.02%

Note: Rates represent indicative commercial and central bank quotes during the August 2026 policy implementation phase “.

The Microeconomic Friction: Spreads vs. Double Conversion

1. Direct Spread Comparison (0.27% vs. 1.83%)

For commercial transactions settling directly in Zambia, the ZMW/CNY pair features a remarkably tight spread of 0.27%, compared to 1.83% for the ZMW/USD pair, and 2.02% for both the Euro and Pound Sterling “. This narrow spread represents a direct, upfront transaction cost saving of 1.56% on direct trades settled in yuan relative to the US dollar.

2. Eliminating the “Double Currency Conversion” Penalty

Historically, African importers purchasing machinery, industrial equipment, or electronics from Chinese partners could not execute direct local-currency-to-yuan transactions . Instead, they had to route their payments through **double currency conversions**—first buying US dollars with local currency (subject to the 1.83% spread), and then converting those dollars into yuan offshore. This friction added unnecessary transaction costs of 2% to 4% per deal, in addition to subjecting businesses to weeks of settlement delays and unpredictable exchange rate volatility . Direct yuan clearing through networks like the **Cross-Border Interbank Payment System (CIPS)** bypasses the US dollar entirely, cutting these conversion fees and freeing up vital working capital for domestic enterprises.

Macroeconomic and Sovereign Implications

1. Closed-Loop Sovereign Finance

This microeconomic cost relief directly integrates with Zambia’s broader sovereign debt strategy. By accepting Chinese yuan directly for mining royalties and tax payments, the Bank of Zambia enables Chinese mining operators (like China Nonferrous Mining Corp.) to settle fiscal obligations in the same currency they receive from global metal sales . The central bank then accumulates these direct yuan reserves to **service its bilateral debt obligations directly to Beijing**. This closed-loop mechanism completely removes the need to buy dollars in the open market, insulating both public finances and Chinese investors from ZMW/USD volatility “.

2. The Debt Conversion Model

Under high US interest rates, the cost of servicing dollar-denominated external debt has escalated dramatically, prompting a sovereign drain on foreign exchange reserves . Consequently, sovereigns such as **Kenya and Ethiopia** are utilizing this framework to **convert or restructure portions of their Chinese debt liabilities into yuan**. Bypassing Western correspondent clearing channels shields their national budgets from US Federal Reserve monetary tightening cycles without introducing disruptive local retail controls “.

3. Strategic Trade-offs (The Convertibility Trap)

While direct settlements cut operational costs, they introduce structural risks. Because the People’s Bank of China maintains tight capital controls and manages the yuan on the capital account, accumulated yuan reserves are not fully convertible for global, non-China transactions . This risks catching African central banks in a **”convertibility trap,”** potentially replacing historic financial reliance on Western capital markets with structural, commodity-backed dependencies on the Chinese state.

To manage the structural challenges of de-dollarization and navigate the convertibility constraints of the Chinese yuan, African central banks must transition from reactive monetary policies to proactive, real-sector macro-financial frameworks. Grounded in empirical trade and financial benchmarks from recent central bank and macroeconomic research, the following four strategic pillars outline an operational roadmap to mitigate the convertibility trap and stabilize the domestic currency.

1. The Exchange Rate Stabilization Fund: Neutralizing the Royalty Shock

Empirical econometric modeling of the Zambian financial system reveals a highly volatile relationship between resource revenue collection and exchange rate movements. An increase in mineral royalties (MNR) triggers an immediate kwacha depreciation of approximately 2.16% in the current quarter, representing acute transaction-timing mismatches, foreign exchange demand surges, and market speculation. However, this shock is sharply reversed in the subsequent quarter with a 1.76% appreciation as mining revenues are formally absorbed into the official banking system and channeled into central bank reserves.

To smooth these lumpy, destabilizing cycles, the central bank should establish an Exchange Rate Stabilization Fund governed by strict operational guidelines:

Direct Capture Mandate: To eliminate commercial “bunching” and speculative trading on Cairo Road, 100% of mineral royalties paid in both US dollars and Chinese yuan must bypass private commercial banks and be credited directly to dedicated accounts at the Bank of Zambia.

Yuan Liquidity Matching: Because the yuan is subject to capital controls by the People’s Bank of China (PBoC), accumulated offshore renminbi reserves are illiquid on the global market. The central bank must systematically match its incoming yuan-denominated royalty flows directly to bilateral debt-servicing obligations to Beijing and the purchase of Chinese industrial imports. This closed-loop mechanism bypasses both the US dollar and open foreign exchange markets entirely, insulating the domestic currency from conversion friction.

2. Institutional Reform: The “GoldBod” vs. ZGCL Model

Central bank mandates are structurally insufficient to displace a foreign anchor currency if the domestic currency fails to function as a reliable store of value. To systematically build foreign exchange reserves and prevent capital flight, sovereigns must overhaul their governance of high-value commodities. A stark contrast exists between the institutional design of Ghana’s Gold Board (GoldBod) and the Zambia Gold Company Limited (ZGCL):

The Zambia Gold Company (ZGCL) Limitation: ZGCL is structured primarily as a state-owned commercial entity. It operates within existing regulatory frameworks, focusing on narrow commercial mining and trading activities rather than broad macroeconomic stabilization. Consequently, it lacks the legal centralisation needed to capture systemic foreign exchange leakages.

The Ghana Gold Board (GoldBod) Solution: Institutionally distinct, GoldBod was designed explicitly as a macroeconomic and regulatory instrument. It combines regulatory authority with market coordination by standardizing export procedures, enforcing strict traceability, and centralizing gold exports—particularly from the artisanal and small-scale sectors where smuggling and foreign exchange leakages are most severe. By channeling all gold revenues into the official financial system and transmitting them directly to the central bank, GoldBod generated $8.3 billion in gold export receipts in the first half of 2025 alone. This intervention increased Ghana’s foreign reserves to 4.5 months of import cover, contributing to a 36% appreciation of the cedi.

Policy Directive: African central banks must advocate for the legislative reconstitution of entities like ZGCL into centralized regulatory clearings modeled after GoldBod, transforming national gold and gemstone sectors from commercial ventures into systemic engines of reserve accumulation.

3. Dual-Clearing Corporate Treasury Capacity: SWIFT and CIPS

To survive in a bifurcated global financial architecture, African central banks and commercial lenders must build robust dual-clearing capacities that bridge Western-dominated and Chinese-dominated payments networks.

The SWIFT vs. CIPS Reality: The US dollar and Euro remain the dominant global trade currencies, representing 43% and 32% of SWIFT payment volumes and 40% to 50% of trade invoicing. However, the expansion of China’s Cross-Border Interbank Payment System (CIPS)—which processed $500 million in transactions via Standard Bank in its first four months—provides an indispensable alternative clearing channel.

Operational Integration: Commercial banks must establish dedicated, direct-clearing windows connected to the Renminbi Clearing Bank of Africa (jointly operated by Standard Bank and ICBC across 19 countries) and pan-African networks like Ecobank. Corporate treasuries importing heavy machinery, electronics, and solar infrastructure from China can clear payments directly in yuan, cutting transaction times from weeks to hours and eliminating the 2% to 4% “double currency conversion” penalty historically incurred when routing transactions through intermediate US dollar correspondent banks.

4. Productive Real-Sector Upgrades as the Ultimate Shield

Long-term currency resilience is ultimately determined by the depth and diversification of the real economy. Central banks must coordinate with ministries of finance to direct capital inflows toward targeted real-sector upgrades.

Manufacturing Value-Add: The Autoregressive Distributed Lag (ARDL) model demonstrates that while manufacturing (MVA) has historically had weak long-term structural linkages in resource-dependent states, an increase in manufacturing activity yields a significant kwacha appreciation with a two-quarter lag. Directing investment to Multi-Facility Economic Zones (MFEZs) and industrial parks for agro-processing and metal fabrication will structurally replace imported goods and expand non-traditional exports (NTEs).

Energy Security and Decarbonization: Econometric analysis reveals a severe macroeconomic penalty associated with energy deficits: a 1% increase in aggregate energy consumption is associated with a 1.1% currency depreciation. This depreciation is driven by the high foreign exchange cost of importing refined petroleum and purchasing emergency electricity to cover hydroelectric deficits during climate shocks—such as the 2024 drought, which forced a 739.8% surge in electricity imports. To halt this systemic drain on reserves, state policy must accelerate private-sector integration of grid-scale solar and biofuels, fully incorporate petroleum products into the TAZAMA Open Access Framework, and diversify import pipelines through regional projects.

The bilateral trade relationship between China and Zambia has traditionally been dominated by the US Dollar (USD), which serves as the primary currency for global commodity markets, including copper, Zambia’s main export. However, in recent years, both nations have taken significant steps to promote and facilitate the use of the Chinese Yuan (Renminbi, CNY) in trade and financial settlements, aiming to reduce dependence on the dollar and lower transaction costs.

Here is a detailed breakdown of the dynamics between the Yuan and the Dollar in Sino-Zambian trade:

1. The Dominance of the US Dollar

Historically, the US Dollar has been the de facto currency for nearly all aspects of Sino-Zambian economic relations:

Commodity Pricing: The price of copper, which accounts for the vast majority of Zambia’s exports to China, is internationally benchmarked and priced in USD on the London Metal Exchange (LME). Consequently, initial trade contracts and revenues are typically dollar-denominated.

External Debt: Most of Zambia’s external debt, including substantial loans from Chinese lenders, has been denominated in USD. Debt servicing, therefore, requires large dollar outflows.

Default Currency: For Zambian importers purchasing goods from China (machinery, electronics, vehicles), the dollar remains the preferred and most accessible currency for international payments within the Zambian banking system.

2. The Emerging Role of the Chinese Yuan (CNY)

China has been actively promoting the internationalization of the Yuan, and Zambia has become a key partner in this effort within Africa. The push to use CNY is driven by several pragmatic and strategic factors:

Key Developments Facilitating Yuan Use:

Designated Clearing Bank: In 2015, the Bank of China Zambia was officially designated as the Yuan Clearing Bank in Zambia. This crucial step allowed for the direct clearing and settlement of Yuan transactions, removing the need to first convert funds into USD, thereby reducing conversion fees and exchange rate risks.

Mining Tax Payments (October 2025): In a landmark move, Zambia became the first African nation to formally accept Chinese Yuan for the payment of mining taxes and royalties. Since October 2025, Chinese mining companies operating in Zambia have been able to settle their statutory obligations to the Zambian government directly in CNY.

Convertible Currency Status: The Bank of Zambia officially recognizes the Chinese Yuan as a convertible currency within its domestic financial system, allowing it to be used for specific foreign exchange transactions and held as part of the country’s foreign reserves.

Currency Swap Discussions: Zambia has engaged in preliminary talks with China regarding a potential bilateral currency swap agreement. Such an agreement would allow the two central banks to exchange currencies directly, providing a line of liquidity in CNY to Zambia to facilitate trade and potentially manage debt payments without drawing on dollar reserves.

3. Comparing Yuan and Dollar in Sino-Zambian Trade

Feature | US Dollar (USD) | Chinese Yuan (CNY)
Status | Dominant, historical anchor. | Complementary, rapidly emerging.
Primary Use | Pricing copper exports, debt servicing, most imports. | Specific import settlements, mining tax payments (since 2025).
Advantages for Zambia | Universally accepted, liquid. | Reduces conversion costs, mitigates dollar scarcity, diversifies reserves.
Advantages for China | Global standard. | Promotes CNY internationalization, reduces exchange risk for Chinese firms.
Challenges | High demand can lead to local currency depreciation (Kwacha). | Limited liquidity in the local market compared to USD, limited acceptance outside China-linked trade.

Summary: Complementary, Not Competitive

The increasing use of the Yuan in Zambia should not be viewed as an immediate replacement for the US Dollar. Rather, it is a pragmatic diversification strategy. The USD remains the default anchor for the Zambian economy, particularly for global commodity trade and reserve management.

The Yuan option provides a valuable “second settlement channel” that aligns with the deep trade and investment ties between the two countries. By using CNY, Zambia can ease the pressure on its dollar liquidity, especially during periods of high demand, and improve the efficiency of transactional flows within the crucial mining sector.